Usage Of 401(k)s As An ATM Soars By 28% In Q4

Nearly one-fifth all people with a 401(k) plan have at least one outstanding loan from it with those under 30 years old having taken an average 38.2% of their remaining untouched balance as the new ATM to maintain the credit-fueled standard of living. In a press release from Wells Fargo, data based on 1.9 million 401(k) holders shows that Q4 2012 saw a stunning 28% surge in the number of people taking loans from their retirement plans. While the numbers are scary for younger people, the older generation is taking more loans with 34.2% of those in their 50s and 28.9% of those in their 60s having taken loans from their retirement plans. Yet another example of the 'strength' of the recovery as those with at least one loan outstanding had an average balance in their retirement plan of $7,764! So much for the wealth effect.

Through an analysis of participants enrolled in Wells Fargo-administered defined contribution plans, the bank announced today that in the fourth quarter of 2012, there was a 28 percent increase in the number of people taking loans out from their 401(k) and that the average new loan balances increased to $7,126 from those taken out in the fourth quarter of 2011 - a 7% increase from $6,662.

Of the participants who took out loans, the greatest percentage were to people in their 50s (34.2%), followed by those in their 60s (28.9%) and then by those in their 40s (27.3%). The increase among participants in their 50s was nearly double the increase among those under 30. This is based on an analysis of a subset of 1.9 million eligible participants in retirement plans that Wells Fargo administers.

“The increased loan activity particularly among older participants is concerning because those are the years when workers can start to make ‘catch-up’ contributions and really need to focus on preparing for retirement,” said Laurie Nordquist, director of Wells Fargo Retirement. “However, we know that this age is also the ‘sandwich’ generation, caught between paying for their kids’ education and supporting elderly parents, which makes saving for retirement even more challenging.”

In addition to the 2012 new loan activity, according to the Wells Fargo data nearly one fifth (19.2%) of people with money in a 401(k) plan had at least one outstanding loan, and of the outstanding loans, the average balance was $7,764. While older participants are taking more loans out than their younger colleagues, the younger a participant is, the greater the loan tends to be as a percentage of their 401(k) account balance. For those under 30, the outstanding loan balance is 38.2% of their remaining untouched balance. For those over 60, it drops to 21.1%. However, only about 9% of all participants under 30 have an outstanding loan, compared to almost 25% of participants in their 40s.

“While the increase in loan activity is concerning, we know that loans are not the biggest driver of leakage from retirement savings,” said Nordquist. “In fact, employees cashing out their 401(k) when they leave an employer are a greater concern. Those dollars are often spent whereas with loans the funds are often repaid and stay in the retirement nest egg.”

30% of homes in Silicon Valley are being bought all cash. When you consider the average price at 650K, you'll realize that people are draining their savings to lbut these homes because in many cases they can't compete when they go in with a loan contingency.

No savings, no problem....real estate appreciates faster than some under-performing funds my company tells me to put it in.

That's the logic anyways. But when the shtf, next go round the financing will dry up and there won't be as many cash buyers, and then it's all downhill from there!

My Silicon Valley HQ-ed company is hiring massively in China and India right now. So all of those 1 million dollar fixer uppers might not be worth 2 million in 3 years if all of the companies in SV continue to hire abroad.

I've lived near SV for a long time and there ain't nothing done here that can't be done elsewhere.

son of stanford professor became a dean of stanford engineering and advised students like Bill Hewlett and Dave Packard to form their own corporations and established STanford Research Park which until recently was Facebook's HQ.

The difference between today and the Dark Ages (when I grew up) is that we spend until it's gone then demand gov't action. In the old days, one had no choice but to be prudent, do without and save. It is the instant gratification psychology that is the problem. Yes, all good things....but when they do, citizens turn to the feds to keep the cash flowubg,

How do folks keep buying with rising SS taxes, gas, food and health care? State assistance in housing (a Walgreen worker nearby earns $42k and pays $120 of her $1800 rent due to subsidy), food stamps, health care, energy bills, child care, school lunches, disability, etc. The true middle class - $50k-$100k - is being flayed. With taxes, SS, health care, higher costs for necessities, disposable income is drying up. Tyler had an article about 2 families in which the one earning $29k had more disposable income than the one earning $69k. Talk about a disincentive to even try.

I agree. We are buying hard assets (land, PM, food, condos, energy stocks, art) as opposed to simply piling up dollars ("safe") in the bank. The garden is expanding - 20 veggies. Last year was such a banner year I was giving away quarts of tomato sauce, herbs, pesto and peppers for smoking.

This really sunk in when I wanted at the money. If it was really mine, then I'd have some semblance of real access to it. Retirement funds are total bullshit. I move the money left around playing bonds and major indices but the gains I make are just meh. It's all funny money anyways. I'm already prepared for it to be Corzined while the poor schlup in the next cube literally went pale as a ghost when I explained Bass's point on Japan and how we're right back at 2007. The sheep still line up to be fleeced.

You got it right, Racer. In 2009 I took out a loan from the 401K and paid off the house. If the Investment company had failed I would have 0 in the 401K and still owe money on the house. Now the house belongs to me as long as I pay the property tax. If the 401K investment fails I still have something. I think the loan increase may be due to fear of a collapse as much as an ATM machine effect.

Personally disagree - don't think the match is worth the principal investment anymore. If you loan up to the max, you will already be "paying yourself back with interest" (snort). Why take even more good money and potentially Corzine it? You bought some phyz, that is good. Use your excess pay to continue the $$ cost average buying (if you have all your other SHTF ducks in a row).

Perhaps a little more stufying the Bible will help you next time you wish to quote the Bible. That verse is at the end of a parable wherein three servants were given varying amounts of money by their master. Two invested wisely and were rewarded when the master returned sometime later. The third, who was given the least and failed to use it productively, was berated. The specific verse you quote is talking about more being given to those who have invested wisely with the gifts entrusted to them, while the one who failed to invest wisely was no longer trusted.

This isn't really about money. It could just as easily be seen as talking about responsibility in a modern environment. If your boss gives you a job and you excel, you may very well be promoted to a more responsible position. If you fail at an assigned task, you probably won't be given other opportunities.

It irritates me when inividual verses are taken out of context, not to mention the problems that arise from different words used in the numerous English translations.

I usually not a believer in dire prophecies but the plight of those who retire with zero money is a recipe for disaster. (Thank goodness they are old instead of young.) SS has become what opponents feared -THE retirement vehicle for folks who didn't save a dime during their lifetime. I don't understand our failure as a society to stress saving at every level - schools, business. , in politics and particularly at home.

But I guess the "want it now" mentality has taken hold. Schools can't teach such things because of fairness - poor folks couldn't save as much. Politicians know that bering dependent gives the State tremendous power. Central planners know that high savings would be the end of our spending/debt-based economy. So everyone is happy.

I don't understand our failure as a society to stress saving at every level - schools, business.

You don't understand that the system is rigged to punish savers and reward borrowers? The fact that savings goes negative and borrowing goes beyond any possibility of repayment in a system in which the currency is comprised of debt surprises you? The great awakening is taking longer than I'd hoped.

I concur. Money I saved going back to the 1970s has mostly lost its purchasing power. Too bad I wasn't smart enough/brave enough to start plowing every extra dollar into gold (once owning it was legalized) and silver coins.

Putting money into a 401K nowadays is only good to the extent that the employer matches a significant portion. Putting money into that (or an IRA) has a potentially negative effect once one withdraws it while collecting Social Security. If one is married and has an employed spouse, it is easy to see up to 85% of Social Security income taxed. It is based on the level of other income. Withdrawals from tax-deferred retirement accounts also accrue toward that income level. Thus, even if one is in the 10% tax bracket, each dollar withdrawn from a retirement account can result in approximately $1.90 of additional tax, which is effectively a 19% marginal rate.

Here's a question: If one takes a loan out on a 401K, and then the government confiscates the account, is the loan still payable?

My suggestion: upon turning 59 1/2 years, take out any money in a 401K, avoiding the 10% penalty.

Consult a proper tax lawyer for more accurate information, but this is how it played out for me this past year.

Thanks for spreading this info My wife and I paid max into SS for years yet we will receive only slightly more than someone who paid a fourth. Our Roth IRAs are allegedly immune since we already paid taxes on them. In our 40's we began diversifying - property, PM, art, land - to avoid the very thing you mentioned. I consulted at AIG when it went down and many folks lost almost everything. One of the few thigs to emerge from the recession was a limit on the amount of company stock an employee could own. I am not taking SS unti my wife retires to avoid the taxation problem.

Answer to your question: Probably not but if we come to that it won't matter anyways. If the US, once the freest nation on Earth, voides the most basic of property values then we'll have gone so far that loans won't matter.

Um this is a rather silly generalization. 401Ks are tax advantaged because the money is designed to be used for retirement. The penalty for early withdrawal is the tradeoff for the tax benefit. If you don't want your money "held hostage", don't open a 401K and pay full taxes on it immediately - pretty simple.

IRAs are nothing more than govt attempt to use the tax code to encourage people to save for retirement. No one is holdnig anything hostage. Rather dramatic hyperbole, even for ZH.

Well aware of what it was "designed" to do. No one said people are forced into this situation. But once someone makes the agreement, their money is being held hostage...Hence penalties for early withdrawal. Unless of course your withdrawal meets one of the gererous exceptions provided by our all-loving benevolent government.

I took a $50,000 loan from mine last month. Why you ask? Because it was the only way to get my money out of the system before the government confiscation begins. Funny thing, I asked to close it out entirely and pay the penalty to the tax man now just so I could have MY money now. Take a guess as to what my plan manager says: "You can't close this out until you either A: Retire or B: Quit your job " ...... So there you have it. Pretty pernicious little system wouldn't you say? Oh no don't be silly folks that money doesn't belong to you.....silly little slaves ...now get back to work slave!!!!!!!!

I also don't think that is a bad idea if spent wisely - not on new cars. I consider my withdrawals the fixed income portion of my asset allocation. How many idiots are sitting in cash getting nothing? Who wants to try to borrow money from a bank?

I have installed a large vault door on an all concrete storage area. It holds many guns, ammo, back-up power, survival gear, and food storage. It also hold all digital and family records. Thought of fire or theft?

Easier to borrow from myself - Wells Fargo is just pissed that this can be done and you don't have to come to them to get raped on interest rates.

So you take a loan out on your 401k and you pay yourself back @ a higher interest rate than the return you'll receive from the 'safest' investment option(usually a MM or maybe a bond fund) in the plan. What's the problem?

I'm in the same boat as you sansnobel...the only way to access it is to quit or retire, and I can't even get a loan from mine unless I can prove "hardship." Also it's the only way I can get anything out of the large corp. I'm employed by with a 6% match on what I contribute. No pension coming from this gig.

My wife however can take loans out with her 401k, and we've been utilizing the hell out of that option.

Maybe I'm simple, but why is the perception promoted that it's a bad thing to borrow from your 401k? Usually this is what you hear from the 401k management companies such as Merrill Lynch/BA, T. Rowe Price, Vanguard, etc.. Could it be that they have an ulterior motive for their positions on 401k loans? Yeah I already know the reasons why from their POV.

I used the proceeds of the loan to go ahead and extingish my Mortgage debt. Reason is pretty apparent, I have no other streams of income other than my job so when the shit hits the fan again and IT WILL!!!! I have a house that is paid for entirely and the thieving Bankers will not get their hands on it to forclose and fleece me out of my net worth. Actually I kinda hope they try to forclose on me after my house is paid for so I can produce legal title and sue their asses!!!!!!!

Been borrowing and paying back myself with higher interest since 2009. 15 Loans so far to date. The balance in my "actual" 401K is much higher it's just that it's not in the form of a paper colored pie chart anymore. I have very many new shiny paper weights and door stops made by some unknown company called Johnson Matthey. ;)

This story ignores one obvious option....that people's salaries often get cut when they "leave a job", and tapping into a 401K is their only option.

Granted...Americans have become far too accustomed to living on credit, but the ugly unspoken truth is that between Bernanke decreasing the actual value of the dollars they have, and the increasing lack of jobs that pay reasonable salaries, folks are between the proverbial rock-and-a-hard-spot. Two income households are now (maybe) one income...(or one and 1/2). Even folks who didn't go crazy wild with their credit cards are having problems.

The 'sheeple' have let this happen....(I get that)....but there are also good, hardworking folks who are getting punished as well.

It isn't their fault they are financially aloof and pridefully optimistic: it's America!

It took me til I first got laid off at 26 to realize this; 5 years later I've deleveraged my debt by 80% (and will be in the black by August) and paired back my expectations on my life - like for example, I'll probably never marry or have children because I know I can't afford that AND my end of life care for my parents.

It also helps that most employers don't match 401Ks today; mine doesn't, so why should i participate? With these ZIRP rates, you have to gamble either in the stock market (rigged) or actual gambling (which is what I do; when I win - it actually HITS my hand).

I'm content with that. Others might not be, but there will be alot of angry white people who, when they have the rugged pulled under them in a few years, will realize how it feels to be a serf in America once and for all.

The way not to gamble with investments is to get a good financial manager. A professional does not charge for services (he is paid if you purchase securities offered). A professional will set up a strategy based on your current and future needs. He/she will never "push" anything. Most important question, what is their strategy for dealing with down times in the market? And because they have a strategy, they retain capital. I see this all the time - "The market is rigged / it shouldn't be this high / it's not real" - but none of these is a reason for not investing in a rising asset.

By the way, marriage is one of the best financial decisions you can make. Two can almost live as cheap as one - kids are a tossup. I have one good, one bad, love em both. Good luck and congrats on digging yourself out of debt.

I got my first job with Lucent out of college. Got stock options, 401k, a decent starting salary. I ended up with a couple grand in the 401k, stock options worth just about nothing, and a pile of debt from needing to move half way across the country and live in Hoboken.

The 2000 market crash wasn't very kind. Since then I have refused any 401k plan, haven't invested a dime in the ponzi, and pledged to work only for private corporations that value labor. My friends that work for large multinationals average 1-3 years at their jobs. Sure they get paid more than me, some got lucky and got shares that moved up enough to buy some nice toys, but in 2008 most of them lost everything.

I have a mortgage, but I'm almost out of debt after consolidating all of my debt with my wife's when we got married. I put $10k of her debt on a 2.9% locked balance transfer. She wasn't good with credit, I am.

You can live outside the Ponzi if you are content to live a little above average. Could I make $125k a year at a large publicly traded company? Yeah, but I'll never see my kids. I could probably get that Audi S6 I really like, but that isn't really important. I'd be like a lot of people I know who change jobs every couple years with no stability. I don't want that.

I have a friend that works for Google. She pretty much lives there and puts in 80+ hours a week. She likes it and tells me she loves all the perks. Swimming pool, no set hours, free meals sometimes, free childcare, even sleep pods for taking naps. She has a 2400sq ft home that she never uses. She told me she bought the house as an investment, not to really live there. Wow, what a dream life.

So I get a call from a guy who wants to take out a loan from his 401k. I look at his account and it's got $1500 in it. The minimum loan amount is $1000 and the max is 50% of the balance. Denied.

So the sharpie gets himself "fired" (I shit you not) and says gimme my money back. He nets about $850 after taxes and the 10% early withdrawal penalty and complains about that, of course.

Few weeks later he gets himself re-hired and finds out he's gotta wait a year to be eligible to participate again. More complaints, natch.

Nothing surprises me. If people want to be stupid, be stupid.

FYI- if you take out a loan on your 401k and don't repay it the entire distribution is reclassified as an early withdrawal and you owe TAXES PLUS THE 10% PENALTY on it. Don't take loans from your 401k.

Hey, if you want out then that's the way to do it. What I'm saying is don't fiddle-fart around with loans. If your fear is that the government is going to take everything in your 401k then having loans out against it isn't going to help you- you're still going to owe the money even if they take everything. Just that you won't be paying yourself back any more- you'll be paying the government.

Remember that 401k plans only exist because the government allows them to. They're ERISA plans and like any government sponsored program they're a fucking mess of rules and regulations. In such situations struggling and flipping around in and out of things, changing your mind again and again just makes you sink in the quicksand faster. Make your plan, stick to it.

I've been holding my mortgage payment. On the 3rd month, I get the nasto-gram from the lender institution. Now I have a "qualifying circumstance" in my 401k plan lingo.fax the letter in with the "Please may i have more of my own porridge" form and its... magic: mortgage paid via 401k monies that otherwise I wouldn't have been able to touch. Rinse, repeat.

One fucking institution get's paid with fiat from the other. And I use windfall to buy [Some Things] that won't electronically evaporate.

My 401k plan, Hewitt, has even streamlined the process, due to hits. A year ago you had to call the service number and talk to a representative to get the most holy annoiting and approval. Now you just print the damn form off and fax your shit in.

You actually intentionally triggered the "to avoid foreclosure on your primary residence" clause? Holy shit, that takes some balls. I assume you don't have much need for credit other than your mortgage.

If I could make a suggestion- you probably shouldn't participate in your 401k. Pay the taxes, take the money home with you and use it for whatever you choose from there. That's a lot of gyrations just to pay a mortgage.

LOL, thanks, but yeah man, it was the only way. That or do a can-opener dive off a step ladder every 3 months and get a knee replacement.

The damn plan doesn't permit withdrawal unless of medical, educational, new primary residence or "hardship".So you can take 50% loan, but after that you're pretty much locked.It worked out to 3 months because that's what Regions would tolerate before the letter showed up with the desired verbiage. First and second month you get warned, but that 3rd month letter contains the magic words "foreclosure proceeedings" and that's what Hewitt wanted to see before they'd approve the 401k withdrawal.

and yeah, I'm not contributing now, in fact for the past 2 years. Was a kool aid drinker until about the time I came here to ZH. The siren's song of "company match"sure does seem like a good deal when you're younger and dumber. Mother Fuckers.

Don't take loans is damned good advice. I say don't play the game at all and then there won't be an issue. By the way those penalties are menial in comparison to the food inflation I've experienced over the last 25 years.

If someone truly believes the govt will confiscate their 401(k), then they should do much more than not participate in a 401(k) plan. Otherwise, and for most plans, there's an employer match on your deferral - typically averaging %50 up to a 6% deferral. Notwithstanding a discussion about the loss of capital gain treatment on your account or increased tax rates on later-in-life distributions, you get a 100% return on your first 3% deferral. I'll recommend that every time. Loans? Sure, if the purchase makes sense. And why not pay yourself the NIM and take the business from the banks at the same time?

Well, one needs to make the decision based on their own financial situation. Be aware of what could happen if things turn south. I took out my 50k loan as well. Distributed some to physical cash, physical pms, and left some to play the casino. Shit goes bad, I'll have enough to cover the penalties but at least a portion of it is out of the system. Fuck the banks - starve the beast.

In fact, employees cashing out their 401(k) when they leave an employer are a greater concern. Those dollars are often spent whereas with loans the funds are often repaid and stay in the retirement nest egg.”

The first step is to force feed your 401Ks with govt bonds. The second step is to default on them! Oh, I am sorry Mike Norman, the US govt will not default because they will print the USDs? Hopefully those will be worth an icecream scoop on July 4th of 2019!

This news should be enough to make Maria Bartiromo do a Brandy Chastain, run across the CNBC floor, drop to her knees and rip off her shirt to reveal a t-shirt with BULLISH!!! printed across the chest.

The two friends who just closed up their stores due to the serious increase in postal rates, health care premiums, etc are jobless now and told me they need to tap into their 401s for survival until they find a job.

Bad news. BTW, no more home repairs, no more iPads, etc. for them or their kids.

I'd like to hear some details from those who have taken loans and/or cashed out their IRA entirely. What are the pros/cons of each? What actual rate do you pay on your IRA cash-out in addition to the 10% penalty? Also, I have to wonder if you'll see a "debt forgiveness" plan being discussed for those who have taken loans out against their 401k plans like you see for home loans and student loans.

I cashed mine out in 1999 and bought some acerage in the mountains. I was certain the market was going to crash. It did and I didn't. I held the land for 4 years as the properties around me were developed and sold at a 3x increase. I bought a smaller piece of land with a house and went into business for myself in 2003. I own my home and owe no one. I raise 85% of what I eat and I could eat only what I raise. I get up at 4:30AM, milk my cows, have breakfast, got to work, come home, milk my cows and do rest of chores (feed pigs and chicken or garden) have dinner. Next day I start all over. I have a modest savings (not in a bank or in paper) and I don't plan on retiring until I am no longer phiscally able to work. "Live a simple and humble life, working with your hands and be dependent on no one."

It's simple. If you can borrow from yourself at a rate lower than a bank, it's worth the consideration. But whatever you're buying should be important because you'll pay 5% or more on the loan (to yourself by the way) and you'll have payroll deductions to repay the loan (and you can't pay down, only pay off if you do anthing but automatic payroll deductions). Plus there's usually a small loan fee ($50?). No penalty/tax impact to borrowing - only early distributions. Debt foregiveness? Why would the govt forgive a debt you have to yourself? The only reason would be to eliminate the inclusion into income - taxability - that someone described above.

Considering the negative votes it appears you understand the owner's scheme better than the usual bunch of know-it-all knuckleheads who troll these boards. Even though most think they have it all figured out, they don't like seeing any possible opinions, let alone potential truths, that might contradict their beliefs. They just know they will have Gawd, Guns and Grub to use against people they hate when the shit comes down.

The sheeple are still using their assets like an ATM. I have a neighbor who went out to get a few "household tools" one day and came home with a $1200 mechanics tool box set and $2000 Mechanics tool set from sears. That was 15 years ago and the man has still never used 99% of the set. I asked him once if he has ever changed his own oil or spark plugs and he told me he does not know how.

Two years ago this same man has a toilet go bad on him and spent like $12,000 on a complete bathroom overhaul. I asked him if he was having major problems with the bathroom or if he was tired of the colors. He told me that there was no problems other than the toilet and had white tiles removed and replaced with white tiles and the same colors but did have a stone sink top installed.

Most of us are living large today like our hard working parents could only dream of and its still not good enough. People are spending money today like they have their own printing press in the basement. Well, I guess they don't need that since their home is an ATM!

What was that question about spending retirement money to maintain a lifestyle?

That's a two way street - actually I suspect the reverse is more common.
There was a time when a young person willing to work hard could expect to live comfortably and raise a family.
Now we are experiancing the poverty/color tv effect - I can't affort a decent home but I can finance a new iphone!

Living below your means seems to be a concept that's completely foreign to most Americans. The community on the site below tends to take the concept to an unprecedented level, and I say all things in moderation, but the concept of making do, using it up and wearing it out is sound.

Factor in “Means Testing”… and you lose ! Again ! 7% modeling (until you read the small print) to funny. The commercials shows, shiny teeth, green grass and grandchildren hugs… etc. Spades anyone? As in calling a 401k what it is, was and will never be. A leverage gimmick for the financiers that know how to ring stock options out of “investing” in the “shit that we see”… not for profit sake, but impression sake. Happy Monday